Recent impressive financial performance notwithstanding, poor corporate governance, tax raids, unassuming promoter stake, running multiple companies in similar line of business, group companies’ poor financial health, etc. raise perception issues.
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OFFER AT A GLANCE |
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|
Name |
UFO Moviez India Ltd |
|
Public Offer |
Offer for sale of 96 to 98 lakh shares of Rs 10 |
|
Offer % on Total Equity |
37.07 to 37.67% on Rs 25.90 cr |
|
Post-IPO Promoter Stake |
Less than 37% |
|
Offer Price |
Between Rs 615 and Rs 625 |
|
Offer Amount |
Rs 600 cr |
|
Application Quantity |
24 & Multiples of 24 |
|
Bid/Offer Opens |
April 28, 2015 |
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Bid/Offer Closes |
April 30, 2015 |
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Listing |
BSE and NSE |
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IPO Rating |
Nil |
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Book Running Lead Managers |
Axis Capital & Citigroup Global |
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Registrars |
Karvy Computershare |
The IPO
The present issue is an offer for sale from a horde of existing shareholders. The sellers include promoters, associates, private equity firm, FII, directors and many employees. Strangely, the sellers’ respective quantum of offer has not been specified. In October last year they wanted to make an offer for Rs 750 cr which has been pruned to Rs 600 cr now. Since the offer is being made with a price band of Rs 615-625, the aggregate offer quantum works out to 96 to 98 lakh shares. The issue constitutes 37 to 38% of post-IPO capital of the company. Investors should apply for a minimum of 24 shares and multiples of 24 thereafter. Axis Capital and Citigroup Global Markets are acting as global coordinators and book running lead managers to the offer.
IPO Object
The objects of the offer are to achieve the benefits of listing the shares on the exchange and facilitate for the sale of shares by the existing shareholders.
Grading
The company has not sought rating for its IPO.
Company & Promoters
The company was originally incorporated as Valuable Media (P) Ltd in June 2004 which was changed to ‘UFO India (P) Ltd in August 2006. Further, pursuant to a scheme of amalgamation, the erstwhile holding company, UFO Moviez Ltd, was amalgamated with UFO India and the name was changed to UFO Moviez India Ltd (UMIL) in June 2008. Initially located in Mumbai, the company’s registered office was later shifted to New Delhi. However, the corporate office of the company continues to be in Mumbai.
According to the offer document, the company is controlled by two sets of promoters. Whereas the Mumbai-based Valuable group, controlled by Sanjay Gaikwad (49) and Narendra Hete (63), and their associates hold 26.8% of UMIL’s equity of Rs 25.90 cr, Apollo Tyres fame Kanwar clan, Raaja Kanwar (45), and his company, Apollo International, are collectively holding 10.9%. Strangely, both the promoter-groups put together control only about 38% which is proposed to be further reduced through offer for sale. Currently, foreign institutional investor, P5 Asia Holding Investments (Mauritius) Ltd holds the largest chunk 35.73% while private equity firm 3i Research (Mauritius) Ltd controls 21.49%.
As regards the track record of UMIL’s promoters, the Valuable group has reportedly floated as many as 42 companies and Apollo International has more than three dozen companies in its fold. Nevertheless, except UMIL, none has a credible record to speak about. Of the total 80 group companies, as many as 64 are loss-making and 24 companies’ have negative net worth!
Business profile
UMIL reportedly provides an end-to-end, high-reach and high-quality digital cinema solution for movie producers, distributors and exhibitors. The company offers a flexible, transparent and high-impact platform that allows advertisers to have maximum engagement with cinema-goers. According to CRISIL, UMIL is India’s largest digital cinema distribution network and in-cinema advertising platform (in terms of numbers of screens).
In fiscal 2014, the company claims to have digitally delivered more than 1,500 movies in 22 languages to 4,703 screens with aggregate seating capacity of approximately 2.15 million viewers spread across India. Since the beginning of its operations, the company has reportedly digitally delivered more than 8,800 movies in India. Its global network spans 6,626 screens, including 4,911 screens across India and 1,715 screens across Nepal, the Middle East, Israel, Mexico and the USA.
The company has been able to attract 1,056 advertisers from private and government sectors in fiscal 2014, compared with 563 advertisers in previous fiscal. UMIL’s revenue comes from three primary sources: distributors, exhibitors and advertisers. In fiscal 2014, revenue from distributors accounted for 50.5% of its consolidated revenues, exhibitors contributed 23.2% and advertisers brought in 23.7%.
Financial Performance
UMIL has put up an impressive show in last three years. The company’s consolidated revenue increased from Rs 109 cr in fiscal 2011 to Rs 420 cr in fiscal 2014. Consolidated earnings before interest, tax, depreciation have grown from Rs 13 cr in fiscal 2011 to Rs 132 cr in 2014. The company’s bottom line has improved from a loss of Rs 16 cr in 2011 to a profit of Rs 50 cr yielding an EPS of more than Rs 19.
The company has reserves worth Rs 374 cr including share premium of Rs 344 cr at the end of fiscal 2014. In last three years, the company’s operating margin has consistently been above 31% which is the highest among the entertainment industry heavy weights. Nevertheless, UMIL is yet to join the dividend list.
Valuation & Perception
UMIL’s price band (Rs 615-625) discounts its historical earnings 32 times, net worth 4 times and revenue 3.8 times which compares reasonably well with the entertainment industry heavy weights. While the company’s recent performance may perhaps justify the offer price, one should not overlook the following: Cost of holding for the individual promoters (Sanjay Gaikwad and Narendra Hete) is nil, cost to promoter-companies Valuable Media Rs 191.11, Valuable Technologies Rs 165.40 and Apollo International just Rs 60.70. While the company’s margin is the most attractive in the industry, promoters, who have only a minority stake, are diluting further. Also many employees are selling their small stake. If the prospects are so promising, why promoters and employees who understand the potential of the company better should dilute their stake?
The promoters indeed score poorly on the corporate governance front. They have floated too many companies in related line of business and none of them other than UMIL has credible performance. No wonder that they had to face income tax raids! Recently UMIL has been served a legal notice by its main competitor for alleged infringement of its patent. There are instances of misappropriation of funds by employees.
There has been delay in remittance of statutory dues and regulatory filings. The form filings made by the company with the Registrar of Companies, Maharashtra in relation to the increases in capital are not available with the company! UMIL’s registered office was changed four times in five years between 2006 and 2010. The company still does not own its registered office, corporate office and other material properties.
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HOW UFO MOVIEZ COMPARES WITHIN ENTERTAINMENT INDUSTRY |
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COMPANY |
M-Cap |
EQ |
P/E |
P/BV |
P/R |
YLD |
CLP |
|
|
(Rs Cr) |
(x) |
(%) |
|
|||
|
Zee Entertainment |
31,573 |
96.04 |
39.5 |
11.6 |
6.7 |
0.6 |
328.75 |
|
Eros International |
4,262 |
92.37 |
19.4 |
3.5 |
3.5 |
0.0 |
461.45 |
|
PVR |
2,583 |
41.40 |
52.6 |
6.5 |
1.7 |
0.4 |
623.90 |
|
Inox Leisure |
1,638 |
96.16 |
109.9 |
2.6 |
2.5 |
0.0 |
170.30 |
|
Sri Adhikari |
855 |
34.94 |
370.9 |
4.5 |
10.5 |
0.3 |
244.80 |
|
Shemaroo |
510 |
27.18 |
18.8 |
2.5 |
1.6 |
0.3 |
187.80 |
|
UFO Moviez – High |
1,619 |
25.90 |
32.3 |
4.0 |
3.84 |
0.0 |
625.00 |
|
– Low |
1,593 |
25.90 |
31.8 |
4.0 |
3.78 |
0.0 |
615.00 |
Lead Managers’ Track
UMIL’s offer is being lead managed by Axis Capital and Citigroup Global Markets whose marketing capabilities are well known. Nevertheless, the post-issue record of the IPOs managed by these investment bankers does not exude much optimism. In recent times Axis has not managed many IPOs. The last one managed by Axis, Inox Wind (March this year) is quoting at a decent premium though the previous one, Monte Carlo (December 2014) is languishing below the offer price. The issues managed by Axis during 2006 and 2007 are in a pathetic state today, losing more than four-fifth of the investment cost.
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AXIS CAPITAL-ASSOCIATED IPOs |
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|
CO_NAME |
IPO DATE |
IPO PRICE |
CUR PRICE |
GAIN % |
|
INOX WIND |
18-Mar-15 |
325 |
421.20 |
29.6 |
|
MONTE CARLO |
3-Dec-14 |
645 |
540.00 |
-16.3 |
|
BHARTI INFRA |
11-Dec-12 |
220 |
373.15 |
69.6 |
|
TARA JEWELS |
21-Nov-12 |
230 |
65.25 |
-71.6 |
|
MT EDUCARE |
27-Mar-12 |
80 |
108.90 |
36.1 |
|
NBCC LTD |
22-Mar-12 |
106 |
784.10 |
639.7 |
|
INNOVENTIVE INDUSTRIES |
26-Apr-11 |
117 |
12.72 |
-89.1 |
|
ORIENT GREEN POWER |
21-Sep-10 |
47 |
14.12 |
-70.0 |
|
JAYPEE INFRATECH |
29-Apr-10 |
102 |
16.65 |
-83.7 |
|
MANDHANA INDUSTRIES |
27-Apr-10 |
130 |
282.30 |
117.2 |
|
SHREE GANESH JEWELLERY |
19-Mar-10 |
260 |
15.57 |
-94.0 |
|
KSK ENERGY VENTURES |
23-Jun-08 |
240 |
58.45 |
-75.6 |
|
KNR CONSTRUCTIONS |
24-Jan-08 |
170 |
479.30 |
181.9 |
|
SEL MANUFACTURING |
26-Jul-07 |
90 |
3.64 |
-96.0 |
|
OMNITECH INFO |
19-Jul-07 |
105 |
7.70 |
-92.7 |
|
ABHISHEK CORPORATION |
20-Feb-07 |
100 |
1.89 |
-98.1 |
|
JHS SVENDGAARD LAB |
26-Sep-06 |
58 |
8.75 |
-84.9 |
|
NITCO |
22-Feb-06 |
168 |
16.60 |
-90.1 |
|
BOMBAY RAYON |
11-Nov-05 |
70 |
131.60 |
88.0 |
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JAIPRAKASH POWER |
22-Mar-05 |
32 |
9.35 |
-70.8 |
UMIL will be the first IPO managed by Citigroup in two years. The last IPO handled by Citigroup was Just Dial in May 2013 which is currently commanding a gain of more than 110%. However, some of the Citigroup-managed IPOs of 2007 and 2010 vintage have inflicted huge losses on investors.
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CITIGROUP GLOBAL-ASSOCIATED IPOs |
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|
ISSUER NAME |
IPO DATE |
IPO PRICE |
CUR PRICE |
GAIN % |
|
Just Dial |
20-May-13 |
530.00 |
1121.20 |
111.5 |
|
MCE |
22-Feb-12 |
1,032.00 |
1,021.65 |
-1.0 |
|
L&T Finance Hold |
27-Jul-11 |
52.00 |
63.90 |
22.9 |
|
Tata Steel |
19-Jan-11 |
610.00 |
370.15 |
-39.3 |
|
Coal India |
18-Oct-10 |
245.00 |
376.15 |
53.5 |
|
SKS Microfinance |
28-Jul-10 |
985.00 |
438.60 |
-55.5 |
|
NMDC |
10-Mar-10 |
300.00 |
128.60 |
-57.1 |
|
NTPC |
3-Feb-10 |
201.00 |
150.15 |
-25.3 |
|
D.B.Corp |
11-Dec-09 |
212.00 |
356.60 |
68.2 |
|
Pipavav Defence |
16-Sep-09 |
58.00 |
57.45 |
-0.9 |
|
Oil India |
7-Sep-09 |
420.00 |
469.90 |
11.9 |
|
Edelweiss Financial |
15-Nov-07 |
82.50 |
62.95 |
-23.7 |
|
Religare Enterprises |
29-Oct-07 |
185.00 |
363.20 |
96.3 |
|
Power Grid |
10-Sep-07 |
52.00 |
145.80 |
180.4 |
|
Motilal Oswal Finan |
20-Aug-07 |
165.00 |
263.65 |
59.8 |
|
Puravankara Projects |
31-Jul-07 |
400.00 |
65.00 |
-83.8 |
|
Central Bank |
24-Jul-07 |
102.00 |
103.40 |
1.4 |
|
Omaxe |
17-Jul-07 |
242.19 |
133.50 |
-44.9 |
|
DLF |
11-Jun-07 |
525.00 |
131.25 |
-75.0 |
|
Fortis Healthcare |
16-Apr-07 |
108.00 |
155.60 |
44.1 |
|
Idea Cellular |
12-Feb-07 |
75.00 |
182.65 |
143.5 |
|
Cairn India |
11-Dec-06 |
160.00 |
218.85 |
36.8 |
|
Info Edge (India) |
30-Oct-06 |
320.00 |
821.75 |
156.8 |
|
Union Bank |
15-Feb-06 |
110.00 |
147.95 |
34.5 |
|
Andhra Bank |
16-Jan-06 |
90.00 |
74.95 |
-16.7 |
|
Punj Lloyd |
13-Dec-05 |
28.00 |
29.60 |
5.7 |
|
Oriental Bank |
25-Apr-05 |
250.00 |
210.70 |
-15.7 |
|
Jet Airways |
18-Feb-05 |
1,100.00 |
376.65 |
-65.8 |
|
Note: Price adjusted to stock splits and bonuses |
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